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Rain or Shine: Where is the Weather Effect?

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Author Info
William N. Goetzmann
Ning Zhu

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Abstract

"There is considerable empirical evidence that emotion influences decision-making. In this paper, we use a database of individual investor accounts to examine the weather effects on traders. Our analysis of the trading activity in five major US cities over a six-year period finds virtually no difference in individuals' propensity to buy or sell equities on cloudy days as opposed to sunny days. If the association between cloud cover and stock returns documented for New York and other world cities is indeed caused by investor mood swings, our findings suggest that researchers should focus on the attitudes of market-makers, news providers or other agents physically located in the city hosting the exchange. NYSE spreads widen on cloudy days. When we control for this, the weather effect becomes smaller and insignificant. We interpret this as evidence that the behaviour of market-makers, rather than individual investors, may be responsible for the relation between returns and weather". Copyright Blackwell Publishers Ltd, 2005.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1354-7798.2005.00298.x
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Publisher Info
Article provided by Blackwell Publishing Ltd in its journal European Financial Management.

Volume (Year): 11 (2005)
Issue (Month): 5 ()
Pages: 559-578
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Handle: RePEc:bla:eufman:v:11:y:2005:i:5:p:559-578

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  1. Erik Theissen, 2007. "An analysis of private investors’ stock market return forecasts," Applied Financial Economics, Taylor and Francis Journals, vol. 17(1), pages 35-43, January. [Downloadable!] (restricted)
  2. Ronald Doeswijk, 2008. "The Optimism Cycle: Sell in May," De Economist, Springer, vol. 156(2), pages 175-200, June. [Downloadable!] (restricted)
  3. Jacobsen, B. & Marquering, W.A., 2004. "Is it the weather?," Research Paper ERS-2004-100-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
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This page was last updated on 2009-12-10.

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